On June 24, 2015, Delaware Governor Jack Markell signed into law Senate Bill
No. 75, “An Act to Amend Title 8 of the Delaware Code Relating to the General
Corporation Law.” The law prohibits a Delaware stock corporation from adopting
fee-shifting or “loser pays” provisions in its bylaws or certificate of
incorporation that would shift attorneys’ fees and costs of defense to
unsuccessful plaintiffs in intracorporate litigation. The law confirms that the
certificate of incorporation or bylaws of a corporation may contain a forum
selection clause specifying that intracorporate claims may be brought only in
Delaware courts, but bars provisions that would prohibit stockholders from
bringing such claims in Delaware courts. The changes specifically cover
intracorporate litigation, such as derivative claims in the name of the
corporation for a breach of fiduciary duty.
The Act was drafted in response to the Delaware Supreme Court’s May 2014
ruling in ATP Tour Inc. v. Deutscher Tennis Bund, 91 A.3d 554 (Del.
2014), which held that fee-shifting bylaws for a non-stock corporation were
facially valid and enforceable under the Delaware General Corporation Law if
adopted by appropriate procedures and for a proper corporate purpose.
The reasoning of the court in the ATP case seemed applicable to stock
corporations as well, and the court’s ruling generated a lot of attention as a
potential way for public corporations to deter baseless shareholder suits so
often filed in the merger and acquisition arena. However, shareholder activists
and proxy advisory firms came out against the adoption of such provisions as a
drastic remedy that would deter meritorious suits and could potentially
undermine investor confidence.